Patel calls for level fashion playing field as Temu and Shein affect competition

Minister of trade, industry and competition Ebrahim Patel is calling for the levelling the fashion playing field as Chinese retailers Temu and Shein start to affect competition in the local fashion industry, saying that these platforms should pay equitable import tariffs and value-added tax (VAT) to balance the clothing retail sector’s performance.

During a visit to a local clothing factory in Epping last week, Patel said the booming e-sector could undermine the progress of the last five years, such as the creation of more than 251 000 jobs in manufacturing and 280 000 jobs in the retail sector. He said the key principle was that no player in the clothing and footwear space should be at a disadvantage.

“South African online retail and manufacturing should not be disadvantaged and that equally applies to a foreign online trader selling to the South African market. We must recognise that there is an urgent need to address the issue.”

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The Retail Clothing, Textile, Footwear and Leather Master Plan was developed to produce a competitive, sustainable and dynamic value chain that provides compelling products invested in growing employment and advancing inclusion and transformation.

Retail Clothing, Textile, Footwear and Leather Master Plan

The seven commitments form the core of Phase 1 of the master plan include growing the local market for local products, increasing local procurement, stemming the flow of illegal imports and transforming the value chain from stakeholders.

But the South African clothing retail market voiced its concern over the unbelievable growth of Temu in the country. Its principle is based on minimising additional costs often incurred by traditional retailers by directly linking customers with leading manufacturers, removing unnecessary intermediaries and associated costs.

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While the extremely low prices make South African consumers smile and reach for their wallets, local manufacturers are not happy. Michael Lawrence, executive director of the National Clothing Retail Federation (NCRF), told 702 recently that the federation flagged these issues, with Shein and Temu exploiting tax and customs loopholes to cheaply import their products, with the South African Revenue Service (Sars).

He added that their business model undercuts local retailers, puts thousands of local jobs on the line and limits revenue collection. In addition, Lawrence said research from the NCRF indicated these companies are not paying duties on their imports and avoid paying VAT when required, which affects national revenue and disadvantages local producers.

eCommerce companies not paying correct duties and VAT to Sars

Lawrence said local couriers and service providers contracted by these eCommerce companies also do not report their duties and taxes correctly to Sars. “There have not been any invoices that show the correct revenue collection from authorities regarding VAT and tariffs at this point. Either it is incorrectly declared or miscategorised on the invoice.”

An import tariff of 45% on clothing is levied to protect local producers from cheap imports that would undercut them and threaten their survival in the long run but by avoiding this tariff and the VAT applied, these companies can offer their products at significantly lower prices than local competitors.

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Lawrence expressed his concern that this will create a race to the bottom regarding price where no one wins. Instead, local manufacturers and retailers will lose out and jobs will be lost if this is not addressed.

According to MyBroadband, Temu dismissed these allegations in a recent statement, saying it is committed to complying with local laws and regulations in the markets where it operates. The company said it does not include import duties and taxes on the prices it displays in its South African shop.

Applicable taxes are imposed by local authorities when parcels arrive. “In our commitment to providing the best service to our customers and adhering to local customs laws, Temu collaborates with a reputable logistics company with extensive experience in e-commerce packaging. The logistics company acts as our customers’ agent with the local customs and tax authorities to clear the package, process, and remit applicable taxes.”

SA consumers do not care where the fashion comes from

South African consumers have different views on buying from a huge Chinese giant rather than buying and supporting local. While some say they have been notified to first pay duties and VAT before their goods can be delivered, others say they were notified no duties and VAT apply to their purchases.

While some of them say they do not care about duties and VAT and are only interested in the low prices, other consumers say companies from China are getting preferential treatment as consumers have to pay duties and VAT if they order something from Amazon for example.

Some also say local shops buy cheap Chinese clothing too and then expect South African consumers to pay exorbitant prices for them.

Various academic studies have indicated in the past that South African consumers do not care where they clothes are made and under which conditions, such as in sweatshops where workers have no rights. All they are interested in is that they pay a lot less.